ČEZ shares fall significantly after the announcement of extraordinary taxation

On Tuesday morning, shares of Czech energy group ČEZ fell nearly 7% on the Prague Stock Exchange, continuing a recent downward trend. The more significant drop started last week when the government announced the specific form of the so-called windfall tax, or windfall profits tax, which also applies to energy companies.

One ČEZ share was worth 779 crowns on the stock exchange after 11 a.m. on Tuesday. Compared to the previous day, it had depreciated 6.8 percent. Over the last month, the loss is even more significant – nearly 17 percent.

ČEZ was last below the CZK 800 per share level in early March. Since then, the stock has risen sharply due to high profits due to expensive energy, and in June, it even surpassed the CZK 1,200 per share mark.

In the autumn, however, the talk of introducing a windfall profits tax became louder, which gradually weakened the stock.

On Thursday last week, Finance Minister Zbyněk Stanjura (ODS) officially presented the government’s proposal for an extraordinary tax on energy, banking, petroleum, and fossil fuel companies.

The special tax, due to take effect on January 1, 2023, and will last for three years, will operate as a 60% tax surcharge. Stanjura expects the tax to generate CZK 85 billion in revenue for next year’s budget.

Since the announcement of the specific form of the windfall tax, the shares of ČEZ, which will be affected by the tax, have fallen significantly. On Friday, the first trading day after the ministry’s announcement, the price of one share fell from CZK 936 to CZK 878.

The extraordinary taxation of energy companies in the same or similar form is being discussed across Europe.

For example, the shares of the German company E.ON, which have been written off 16 percent in the last month, are weakening, while the monthly drop for another German energy supplier, RWE, is 11 percent. In the case of the Polish petrochemical conglomerate PKN Orlen, the monthly drop is 10.5 percent.

In addition to windfall taxes, a double tax will be imposed on ČEZ. This relates to a Europe-wide agreement to cap electricity generators’ prices, taking profits above 180 euros per megawatt hour.